Treasury Auction Deluge Set to Test Investors’ Appetite for Debt

Bulging sales of US Treasuries are about to deliver a major test of investor demand and determine whether a selloff has room to run, as the market braces for the biggest round of refunding auctions since last year.

Yields have surged since late July amid evidence of a resilient US economy and after the Treasury shocked traders last week when it signaled greater borrowing needs. A rising US budget deficit and a poor fiscal outlook at a time of near full employment contributed to the move by Fitch Ratings to strip the US of its top rating last week.

The bond market has to absorb a combined $103 billion of 3-, 10- and 30-year auctions before the week is out — up $7 billion from the May slate — as well as a key inflation reading Thursday. Yields on 10- and 30-year Treasuries are around 20 basis points or more higher than just a couple of weeks ago and are within sight of multi-year peaks set in October.

Auctions Set to Arrive at Highest Yields This Year

“There are a lot of factors coming together to push long-end rates higher,” Oksana Aronov, head of market strategy at JPMorgan Investment Management, said on Bloomberg TV. The move could have legs, she said, citing the boost to Treasury auctions, a Bank of Japan policy shift and European Central Bank tightening.